Growth in what?

Redefining Capitalism?

More and more organisations are waking up to the fact that growth in GDP in itself is not a sufficient condition to make a country more prosperous. Something that many ecological economists have been saying for decades. Because many western countries economies are now contracting or struggling to simply stay put, while inequalities are growing, conventional economists are having to admit to capitalism's dark sides. In a recent article, on McKinsey's website, Beinhocker and Hauer (2014) confirms the faulty equilibrium model that neo-classicists have based their theory on. The economy is, as many non-conventional economists have argued, a complex, dynamic, open, and nonlinear system. Similar to that of an ecosystem. And moreover the economy is only a part of larger system. These insights have fundamental implications for how people think about the nature of capitalism and prosperity.

Different types of capital

It is not simply that the economy is a networked system of interacting agents with flows of resources and complex behavioural rules. The economy has to be further understood as a subsystem of our societies and the biosphere. Meaning that there is not only one type of capital (financial) that matters to the prosperity of a community, city or nation. Social capital (e.g. trust, equality, transparency), natural capital (ecosystem services) and knowledge capital (education, research etc) are part of the overall wealth equation too. Without much natural capital the resource base for providing primary goods such as food, drinking water, fuel, clothes and homes is poor and makes societies less able to withstand shocks from natural variabilities (e.g. floods, droughts) and climate change. This in turn effects the overall economy as, for example, natural resources becomes more expensive - prices goes up and people won't afford to spend as much on secondary goods. In a society where there is little trust and transparency, transaction costs are high and investments low. Social capital is the glue which keeps a society together, that enables cooperation. Without it, a society becomes unstable and could lead to political turbulence. This is why inequality is such a major problem, also from an economics perspective. Research and eduction also greatly affects an economy's long-term success. Without knowledge capital there would be little innovation and few new industries or areas of expertise offering comparative advantage.

Now that we know that there are several aspects which are important to the overall wealth and stability of a nation, what is it that we want to grow? Achieving a prosperous society ought to entail keeping a balance between the different forms of capital so to ensure resilience of the overall economy. Moreover, by understanding that the economy is a complex adaptive system we can analyse its pathway from a different perspective. Once again making the economy to just a tool for achieving something larger than just GDP growth in and of itself. If you look at most societies, values and policies that rank as most important include: low unemployment, safety, free speech, fair wages and elections, education, health and equal opportunities to all spheres of social life. So what is it that we want more of, that should grow? Well, in many western societies we want to grow our social, natural and knowledge capital! And not the other way around, as we are doing now, degrading these forms of capital based on the misconception that it is the financial capital that makes for the wealth of a nation.